The dispute between the national government and the provinces is growing day by day, but it already suggests some projections of the economic impact it may have, at least in the short or medium term. According to private estimates, if the Executive continues with its cutting plan, the provinces could be left with the lowest collection percentage in more than 15 years.
”We hope that the provinces will be left with just 28% of the total collected, a level similar to that of 15 years ago,” indicated the consulting firm LCG in its latest report.
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Specifically, in 2023, the percentage of revenue that the provinces received through national automatic transfers was 34%, similar to that of the last six years. In 2007, the last period was recorded in which the provinces' collection was at 28%, as expected for this year.
The main explanation to understand the dynamics of the collection of the provinces is that this year it is expected that the increase in national income will be driven by the increase in tax resources that are not shareable, that is, that the funds will grow and are not distributed with the provincial territories.
”This year the provinces will see their participation in the total national revenue reduced because the increase in tax resources will be driven by non-shared taxes: export duties after the end of the drought and the sincerity of the applicable exchange rate ( for now an 80% official scheme and 20% CCL) and the Country tax for the expansion of the tax base and the increase in rates established last December,” LCG described.
The Minister of Economy speaking at the Casa Rosada. (Photo: REUTERS).
In addition, he highlighted that Profits, the main co-participating tax, will be affected by the reduction of withholdings for workers in a dependency relationship after last year's reform that led to 15 minimum, vital and mobile salaries, the floor for these people. are reached by the tax, and that for now the Executive has not made any progress in modifying, despite the attempt that was truncated after the failure of the Omnibus Law.
A particular case would be that of the Country tax, in which the governors demanded a 30% share, although until now that request has not been granted. Analysts hope that if the Government finally achieves its objective of lifting the stocks or unifying the exchange rate, this tax would be eliminated and any transfer to the provinces that was made through that means would also be eliminated.
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The Government has already made progress in its adjustment plan for the provinces
During the first month of the year, the Executive already showed the first signs of having cut several sources of income for the provinces. As an example, the Congressional Budget Office (CPO) recorded a 30.8% drop in primary expenditures in real terms, which was explained because – except for transportation subsidies – all concepts showed real decreases in the year-on-year comparison, especially capital expenditures, social programs and current transfers to provinces.
In the latter case, the reduction in transfers was 53.3% in the year-on-year measurement, since they went from $103,198 million in January 2023 to $48,233 in January 2024.
The OPC also pointed out that in the first month of the year, transfers to the National Teacher Incentive Fund (FONID) – intended to equalize salary inequalities – were $46,855 million, which represents a real year-on-year decrease of 16.6%. This is one of the main programs under which the Nation sends resources to the provinces and that was under the Government's sights when it came to thinking about its adjustment plan after the elimination of the Interior Compensation Fund that subsidized manufacturing companies. transportation “so that fares are provided at a lower cost and cover operating and maintenance costs.”
The truth is that the Government seeks to achieve a surplus of 2% of GDP in 2024, which translates into an adjustment of five points in the product. According to different private estimates, the cut on transfers to the provinces is around one point of the product.
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Therefore, to begin this program of cuts, in January the Nation sent only $200 million in non-automatic transfers, which is practically bringing them to zero.
“As soon as Javier Milei's government began, a cut of 0.5% of GDP was announced in terms of Current Transfers to the provinces, which represents a cut of approximately 70% compared to 2023, and another cut of at least that is inferred. proportion for Capital Transfers to provinces, given that national capital spending would also drastically decrease this year,” IERAL indicated.